Network Design with Excel vs a Commercial Tool

On Sept 21, on the Ops Rules Blog, David Simchi-Levi responded to a question about whether to make network design decisions with a spreadsheet or commercial tool.

He says the main reason is that Excel is not set up to handle the complexity of the problem and the mathematical optimization.  In addition, he cites several advantages of a commercial package:

  1. Ease of use of setting up the data and validating it
  2. Built in optimization and analytics which cannot be done with a spreadsheet
  3. Built in maps, graphs, scenario comparison and reporting capabilities
  4. Tested and stable platform for continued analysis – easy to transfer and share with other users

If you want to see a 15-minute video of commercial tool, here is a link.

I would add just one more point:  There is a lot at stake with network design.  You can be making decisions that impact significantly impact your costs and service.  You should make sure you understand, at least at a high level, the math involved in these before you do the project in Excel.  This way, you will have a sense of what you are giving up.

Doubling the Capacity the Panama Canal

The expanded Panama Canal, which will allow much larger ships to pass through and will double the capacity, is expected to be completed in 2014.

The first impact is that port cities east of the canal are preparing the handle the larger ships.

The second impact is that firms will have to re-evaluate their supply chain infrastructure.

Many firms currently bring product into the US through the West Coast ports of Los Angeles and Long Beach.  Many of the containers that arrive on the West Coast are shipped via rail or truck to destinations east of the Mississippi River.

So, now that larger ships and more volume can pass through the Panama Canal, does it make sense to shift volume to east coast ports?

The answer will vary for every firm, but the drivers will be:

  • Cost to ship product through the Panama Canal versus the cost to ship through a west coast port
  • Time to ship through the canal versus through a west coast port
  • Location of customer demand
  • Location of existing production and distribution facilities

I suspect that these new options will increase the need for network design analysis.  Not only will the panama canal create a new option, but the west coast ports, inland ports, and railroads will likely work to become more competitive as well.

Geographic Scope of Network Design

We are often asked the question about the geographic scope of network design studies.

We have seen studies done at the global, continental, country, regional, and metro areas.  The last two are usually the ones that people question since they usually see examples of a national study.

However, when a firm makes home or local business deliveries within a metro area, they often have exactly the same trade-offs you would see in a national study.  These firms don’t want their expensive (and maybe small) delivery trucks to spend a lot of time in traffic or driving across the city.  They would rather these trucks spend time at customer sites.

Therefore, they will often need to set up hubs within the metro area.  The product moves from a central warehouse to these hubs.  Then, the delivery trucks pick up product from these locations and spend time serving customers in their area.

An on-line grocer would be an example of this.  The on-line grocer doesn’t want its delivery trucks fighting traffic.  Instead, a central location (where they can get economies of scale in processing and inventory) will truck the groceries to hub where multiple delivery trucks will take it from there.

In general, if you need multiple locations, network design can help you.

Panel Discussion with Sears, Caterpillar Logistics, and NAI Global Logistics

Last week, I had the opportunity to participate in a panel discuss at the Journal of Commerce’s Inland Ports conference in Oak Brook, IL.  The panel was moderated by Adam Roth of NAI Global Logistics and included Jeff Starecheski of Sears Holdings and Brent Lindstrom of Caterpillar Logistics Services.

In a previous post, we shared an article on seven reasons why you need to do a supply chain network design study.

On this panel, one of the questions that received a lot of attention was about how frequently you should do a study.  Some people tend to think that you need to do a study once every 4-5 years.

Interestingly, the consensus on the panel was that firms were doing major studies on a 2-year cycle with minor studies done on an ongoing basis.  Now, some investments are expected to last 10 years so not everything is open within a 2-year window, but firms find too much savings to ignore the structure of the supply chain.  There is no reason to wait five years for the supply chain to get out of sync.


7 Signs Your Supply Chain Needs a Redesign from CSCMP’s Supply Chain Quarterly

In the 3rd Qrt of 2011, CSCMP’s Supply Chain Quarterly ran an article by Simon Bragg, Richard Stone, and Julian Van Geersdaele discussing the 7 signs you need a redesign.

Here are the 7 signs from their article:

  1. You have objectives rather than strategies
  2. People ask:  Why do we do things this way?
  3. The number of customers and products is growing faster than your budget
  4. Consolidation or collaboration is coming
  5. You experience a major service failure
  6. Fear is in the air
  7. It’s time to renew a third-party logistics contract

These are all good reasons and the article can be a nice reference for you.

Top 3 Reasons You Should Understand the Math Behind Network Design

Commercial network design tools (like IBM’s ILOG LogicNet Plus XE) hide the math formulations behind an easy-to-use interface and take care of the sophisticated solve automatically.

This is how it should be.  You don’t want to think about the math when doing a project like this.  You want to successfully complete the project.

However, in the book, we cover some of the math behind these problems.  Why do we do this?

  1. To Help You Build Better Models.  You don’t need to write the math on your own or go into the details of how the solver works.  But if you understand the math, you will be better able to set up models to do what what you want them to do.
  2. To Help You Understand What Might Be Hard vs Easy.  If you understand the math, you will understand what may make your model hard to solve.
  3. To Help You Validate the Results.  Generating a solution to a network design problem requires an understanding of Mixed Integer Programming.  But, with commercial software, you are presented results.  By understanding the math, you will be able to validate the results and make sure the solution is valid.  This allows you to better manage projects and ensure good results.